Unions are angry Finance Minister Bill English has ruled out a four percent wage increase for public sector workers, saying before the election he had raised their expectations.

Bill English believes a four percent wage increase is not reasonable in the current circumstances. Photo: RNZ / Alexander Robertson

Mr English told TVNZ's Q&A programme that a four percent pay increase was not reasonable at present and a rise of one to two percent was still a significant gain over the cost of living.

The New Zealand Educational Institute is set to negotiate with the Government over teachers' wages later this year, and national secretary Paul Goulter said a one to two percent rise was simply not enough.

"Teachers right throughout New Zealand are quite clear there needs to be a catchup because teachers, over the past few payrounds, have pulled their belt in considerably in a time of incredible change inside education and this doesn't appear to have been recognised by the Government."

Mr Goulter said Mr English's comments would certainly lower the morale of teachers.

"We are always suprised when you are meant to be in a negotiation situation and one party comes out and just unilaterly says 'that's not a place you're allowed to go to' - that's not negotiation, that's dictating."

The New Zealand Nurses Organisation says it is currently negotiating a fair and decent pay rise for its members.

"He was talking about a rock star economy pre-election and of course the rhetoric has completely changed.

"The problem we have in negotiating for the DHB members is that the funding for the health system is lower than it has been for over the previous decade."

Mr Harry said DHBs were having to fund pay increases out of a reducing pot of money and it was time the Government stepped up.

Labour's finance spokesperson Grant Robertson said Mr English had done a backflip.

"It seems with Bill English New Zealand workers can't really win.

"When inflation was high he said a wage increase would fuel inflation, now it's low, he says they don't deserve a pay rise.

"I can understand why a lot of New Zealand workers will be saying 'we've done our bit - tightening our belts - isn't it time for some kind of recognition of that?'"

Mr English said wage increases would be more moderate than forecast and a four percent rise was not reasonable.

"The point we were making before the election is the pretty unique opportunity we have in New Zealand for consistent, moderate growth over the next three to four years that will deliver consistent, moderate wage increases for New Zealanders."

The minister acknowledged public sector workers were doing a good job under financial pressure.

"I am sure there will be some tension in the negotiations, that's pretty normal - I'm sure there will be a bit of positioning before we get to negotiations, but, you know, we are pretty confident we've got a positive environment in our public services.

"People know what is required of them, they are doing a good job - we want to see them adequately rewarded for that."

Low or zero inflation meant a pay increase of about one to two percent was still a significant gain over the cost of living, Mr English said.